Beware of the Debt Relief Industry’s Money Traps

Here is an interview in Michigan with a local attorney familiar with several debt relief scams.

Beyond the blatant debt relief scams, most of the debt relief industry is trying to get you to spend money you do not have. Ask yourself this simple question when considering paying for debt relief, “If I cannot afford to pay my credit card debt, then how can I afford to pay for debt relief?” The answer is you cannot afford to pay for debt relief, but that will probably not prevent you from at least initially being seduced by the debt relief industry’s siren song of let-us-professionals-take-care-of-your-debt-problem-for-you.

Some of the obvious credit card debt scams I refer to;

We’ll buy your credit card account from you.

Novation (one time minimum payment)

Accept for Value and Discharge

Arbitration Awards in Your Favor

Credit Card Companies Do Not Lend

I cover these in more detail in my program, but when it comes to –

Debt Settlement

Debt Consolidation

Debt Management

Debt Negotiation

And even Debt Counseling (when they want to make payments to your creditors with your money)

How can you afford to pay for those, if you cannot afford to pay your credit cards?

Regardless of whether it is a black-hat scam OR a supposed white-hat debt relief service, debt relief is code to these people for “Pay us first. We are they experts. Then we will help you.” Of course, once your payment has been made or payments are completed, the transaction is over as far as these people are concerned. The rest is window dressing to make you feel better about sinking further into debt.

The best and only way to judge and trust a debt relief service is whether or not you can wait to pay them until after they have achieved some debt relief results for you. But even these firms are not concerned about what is best for your overall financial health. They are not concerned about whether you can really afford their services. When an innkeeper rents you a room, if you have the cash, then you can afford it. They are the same way. They have dealt with hundreds of debtors. The Federal Trade Commission (FTC) has a section on avoiding debt relief scams.

So what do you do? You face up to the reality of not paying your credit card debt. Unfortunately, you may first attempt to avoid this difficult decision by giving money to debt relief “experts” (experts at taking your money) and put yourself further into debt. Eventually most heavily credit-card-indebted consumers realize they must stop paying their credit cards, so they can pay for the monthly necessities of rent, utilities, food, clothes, healthcare and transportation.

Non-payment of credit card debt is initially an ingrained, perceived non-option because of its apparent legal implications. That is, eventually, you think you could get sued. And, you are guilty. You made those charges. You owe that credit card debt. All true, but banks have trouble documenting your debt and accounting for the alleged balance to acceptable court standards, as you can read in my numerous blog posts. Consumer rights attorneys defend against and defeat debt collection attorneys most of the time. But, less than 10 percent of “debt-guilty” consumers ever respond to a credit-card-debt summons. Collection attorneys feast on default judgments against, and have their way with, the other 90-plus percent.

If you answer you have a fighting chance. Yes. You could lose with a judgment against you, but you would have lost anyways. If that becomes reality, then it is time to talk to a bankruptcy attorney about filing for bankruptcy and wiping out that judgment.

Debt Counseling – Simple debt counseling, where you talk to a debt counselor about your financial situation and receive advice about it, is a positive debt relief step. However, usually debt counseling is bundled with a debt management plan where you pay them a monthly lump sum and they distribute that amount to your credit card companies and possibly other creditors. Above and beyond the simple debt counseling fees, debt relief organizations profit from these debt management plans. That is, they pocket some of your money, or give you double talk about how the credit card companies are paying their fees. Frequently these firms use non-profit or even Christian to promote themselves. If they emphasize non-profit or Christian that means they want to sign you up for a debt management (you pay) plan.

Debt Counseling, Debt Management, Debt Consolidation, Debt Negotiation and Debt Settlement – These are all terms these competitive organizations use to market themselves and differentiate themselves from each other. The true nature of these services differ from debt-relief firm to debt relief firm.

Debt Counseling, Debt Management, Debt Consolidation, and Debt Negotiation all have something to do with paying the alleged debt relief service so that they can distribute your money “expertly” to your various credit card companies and other creditors. You are paying them to manage your money and make your debt payments. Why, if money is tight would you ever do that? Supposedly they can “expertly” negotiate with your creditor and get your payments reduced. Some may, in fact, be able to do that for a bit, but your principal owed will probably go up as a result, your credit rating will suffer, and you will have no money, when and if you need it. This is nothing more than a peace-of-mind luxury to help you deal with your stressful financial situation. You will do better doing a better job of educating yourself about debt and paying your own monthly bills, when you can afford to pay them.

Debt Settlement – There are two kinds of debt settlement – payment plan or lump sum. Fewer than 10 percent of payment plans are ever completed. When you finally miss a payment due to monthly essentials, what you have paid in usually gets eaten up by fees and penalties, and you are back to what you owed. Avoid payment plan settlements. A lump-sum plan calls for you to stop paying your credit card(s) and giving that money to the debt settlement firm, who will hold it for you until there is enough to negotiate a 30-70 percent reduction in the amount owed. Of course 15 percent of what you owe comes out first for the debt settlement firm’s fees. These payment plans also rarely come to fruition. In addition these firms take over communicating your creditors, which can be dangerous for you. You could be blindsides by a credit card lawsuit you could have avoided. Avoid them.

Educating yourself about your credit card debt situation is the key to real and lasting credit card debt relief. That is what I did. And, I put what I learned into the program I offer on this website. If you cannot afford to pay your credit card debt, read these posts.